Wen family’s hidden billions revealed

Winston Wen’s deal-making has been extensive and lucrative.
Photo: AFP

by
David Barboza

The mother of China’s Prime Minister was a schoolteacher in northern China. His father was ordered to tend pigs in one of Mao’s political campaigns. And during childhood, “my family was extremely poor", Prime Minister
Wen Jiabao
said in a speech last year.

But now 90, the Prime Minister’s mother, Yang Zhiyun, has not only left poverty behind – she has become outright wealthy, at least on paper, according to corporate and regulatory records. Just one investment in her name, in a large Chinese financial services company, had a value of $US120 million five years ago, the records show.

The details of how Yang, a widow, accumulated such wealth are not known, or even if she was aware of the holdings in her name. But it happened after her son was elevated to China’s ruling elite, first in 1998 as vice-prime minister and five years later as prime minister.

Many of Wen’s relatives, including his son, daughter, younger brother and brother-in-law, have become extraordinarily wealthy during his leadership, an investigation by The New York Times shows.

Knack for aggressive deal-making

A review of corporate and regulatory records indicates his relatives, some of whom have a knack for aggressive deal-making, including his wife, have controlled assets worth at least $US2.7 billion.

In many cases, the names of the relatives have been hidden behind layers of partnerships and investment vehicles involving friends, work colleagues and business partners. Untangling their financial holdings provides an unusually detailed look at how politically connected people have profited from being at the intersection of government and business as state influence and private wealth converge in China.

Unlike most new businesses in China, the family’s ventures sometimes received financial backing from state-owned companies, including China Mobile, one of the country’s biggest phone operators, the documents show. At other times, the ventures won support from some of Asia’s richest tycoons. The Times found Mr Wen’s relatives have accumulated shares in banks, jewellers, tourist resorts and telecommunications companies, sometimes by using offshore entities.

Related Quotes

Company Profile

The holdings include a villa project in Beijing; a tyre factory in northern China; a company that helped build Beijing’s Olympic stadiums, including the iconic Bird’s Nest; and Ping An Insurance, one of the world’s biggest financial companies.

As prime minister in an economy that remains heavily state-driven, Wen, who is best known for his simple ways and common touch, more importantly has broad authority over the major industries where his relatives have made their fortunes. Chinese companies cannot list their shares on a stock exchange without approval from agencies overseen by Wen, for example. He has power to influence investments in strategic sectors like energy and telecommunications.

Because the Chinese government rarely makes its deliberations public, it is not known what role – if any – Wen, who is 70, has played in most policy or regulatory decisions.

But in some cases his relatives have sought to profit from opportunities made possible by those decisions.

$30m in government contracts

The Prime Minister’s younger brother, for example, has a company that was awarded more than $US30 million in government contracts and subsidies to handle wastewater treatment and medical waste disposal for some of China’s biggest cities, according to estimates based on government records. The contracts were announced after Wen ordered tougher regulations on medical waste disposal in 2003 after the outbreak of severe acute respiratory syndrome (SARS).

In 2004, after the State Council, a government body Wen presides over, exempted Ping An Insurance and other companies from rules that limited their scope, Ping An went on to raise $US1.8 billion in an initial public offering of stock. Partnerships controlled by Wen’s relatives – along with their friends and colleagues – made a fortune by investing before the IPO.

In 2007, the last year the stockholdings were disclosed in public documents, those partnerships held as much as $US2.2 billion worth of Ping An stock, according to an accounting of the investments by The New York Times, verified by outside auditors.

Ping An’s overall market value is now nearly $US60 billion.

Ping An said in a statement the company did “not know the background of the entities behind our shareholders". The statement said: “Ping An has no means to know the intentions behind shareholders when they buy and sell our shares."

No law against relatives profiting

While Communist Party regulations call for top officials to disclose their wealth and that of immediate family members, no law prohibits relatives from becoming deal-makers or major investors – a loophole that effectively allows them to trade on their family name. Some Chinese argue permitting the families of Communist Party leaders to profit from the country’s boom has been important to ensuring elite support for market reforms.

Even so, the business dealings of Wen’s relatives have sometimes been hidden in ways that suggest they are eager to avoid scrutiny, the records filed with Chinese regulatory authorities show. Their ownership stakes are often veiled by an intricate web of holdings as many as five steps removed from the investments.

In the case of Wen’s mother, The Times calculated her stake in Ping An – valued at $US120 million in 2007 – by examining public records and government-issued identity cards, and by following the ownership trail to three Chinese investment entities. The name recorded on his mother’s shares was Taihong, a holding company registered in Tianjin, the Prime Minister’s hometown.

The apparent efforts to conceal the wealth reflect the highly charged politics surrounding the country’s ruling elite, many of whom are also enormously wealthy but reluctant to draw attention to their riches. When Bloomberg News reported in June that the extended family of Vice President Xi Jinping, set to become China’s next president, had amassed hundreds of millions of dollars in assets, the Chinese government blocked access inside the country to the Bloomberg Web site.

‘there’s no family that doesn’t have these problems’

“In the senior leadership, there’s no family that doesn’t have these problems," said a former colleague of Wen’s who has known him for more than 20 years and who spoke on the condition of anonymity. “His enemies are intentionally trying to smear him by letting this leak out."

The Times presented its findings to the Chinese government for comment. The Foreign Ministry declined to respond to questions about the investments, the Prime Minister or his relatives. Members of Wen’s family also declined to comment or did not respond to requests for comment.

Duan Weihong, a businesswoman whose company, Taihong, was the investment vehicle for the Ping An shares held by the Prime Minister’s mother and other relatives, says the investments are actually her own. Duan says ownership of the shares was listed in the names of Wen’s relatives in an effort to conceal the size of her own holdings.

“When I invested in Ping An, I didn’t want to be written about," Duan says, “so I had my relatives find some other people to hold these shares for me."

But it was an “accident", she says, that her company chose the relatives of the Prime Minister as the listed shareholders – a process that required registering their official ID numbers and obtaining their signatures.

Until presented with the names of the investors by The Times, she said she had no idea they had selected Wen’s relatives.

The review of the corporate and regulatory records, which cover 1992 to 2012, found no holdings in Wen’s name. And it was not possible to determine whether he recused himself from decisions that might affect his relatives’ holdings, or if they received preferential treatment.

For much of his tenure, Wen Jiabao has been at the center of rumours and conjecture about efforts by his relatives to profit from his position. Yet until the review by The Times, there has been no detailed accounting of the family’s riches.

Leading authority on jewellery and gemstones

His wife, Zhang Beili, is one of the country’s leading authorities on jewellery and gemstones and is an accomplished businesswoman. By managing state diamond companies that were later privatised, The Times found, Zhang helped her relatives parlay their minority stakes into a billion-dollar portfolio of insurance, technology and real estate ventures.

The couple’s only son sold a technology company to the family of Hong Kong’s richest man, Li Ka-shing, for $US10 million, and used another investment vehicle to establish New Horizon Capital, now one of China’s biggest private equity firms, with partners such as the government of Singapore, according to records and interviews.

As prime minister, Mr Wen has staked out a position as a populist and a reformer, someone whom the state-run media has nicknamed “the People’s Premier" and “Grandpa Wen" because of his frequent outings to meet ordinary people, especially in moments of crisis like natural disasters.

While it is unclear how much the Prime Minister knows about his family’s wealth, State Department documents released by WikiLeaks in 2010 included a cable that suggested he was aware of his relatives’ business dealings and unhappy about them.

‘Wen is disgusted’: Wikileaks cable

“Wen is disgusted with his family’s activities, but is either unable or unwilling to curtail them," a Chinese-born executive at an American company in Shanghai told American diplomats, according to the 2007 cable.

It is no secret in China’s elite circles that the prime minister’s wife is rich, and that she has helped control the nation’s jewellery and gem trade. But her lucrative diamond businesses became an off-the-charts success only as her husband moved into the country’s top leadership , the review of corporate and regulatory records by The Times found.

A geologist with an expertise in gemstones, Ms Zhang is largely unknown among ordinary Chinese. She rarely travels with the prime minister or appears with him, and there are few official photographs of the couple together. And while people who have worked with her say she has a taste for jade and fine diamonds, they say she usually dresses modestly, does not exude glamour and prefers to wield influence behind the scenes, much like the relatives of other senior leaders.

The State Department documents released by WikiLeaks included a suggestion that Mr. Wen had once considered divorcing Ms. Zhang because she had exploited their relationship in her diamond trades. Taiwanese television reported in 2007 that Ms. Zhang had bought a pair of jade earrings worth about US$275,000 at a Beijing trade show, though the source — a Taiwanese trader — later backed off the claim and Chinese government censors moved swiftly to block coverage of the subject in China, according to news reports at the time.

“Her business activities are known to everyone in the leadership," says one banker who has worked with Wen’s relatives.

The banker says it is not unusual for her office to call upon business people. “And if you get that call, how can you say no?"

Zhang Beili first gained influence in the 1980s while working as a regulator at the Ministry of Geology. At the time, China’s jewellery market was still in its infancy.

While her husband was serving in China’s main leadership compound, known as Zhongnanhai, Ms Zhang was setting industry standards in the jewellery and gem trade. She helped create the National Gemstone Testing Center in Beijing, and the Shanghai Diamond Exchange, two of the industry’s most powerful institutions.

In a country where the state has long dominated the marketplace, jewellery regulators often decide which companies can set up diamond-processing factories and which will gain entry to the retail jewellery market. State regulators even formulate rules that require diamond sellers to buy certificates of authenticity for any diamond sold in China, from the government-run testing centre in Beijing, which Ms Zhang managed.

China’s ‘diamond queen’

As a result, when executives from Cartier or De Beers visited China with hopes of selling diamonds and jewellery there, they often went to visit Zhang, who became known as China’s “diamond queen".

“She’s the most important person there," said Gaetano Cavalieri, president of the World Jewelry Confederation in Switzerland. “She was bridging relations between partners – Chinese and foreign partners."

As early as 1992, people who worked with Zhang said she had begun to blur the line between regulator and businesswoman. As head of the state-owned China Mineral and Gem Corporation, she began investing the state company’s money in start-ups. And by the time her husband was named vice-premier, in 1998, she was busy setting up business ventures with friends and relatives.

The state company she ran invested in a group of affiliated diamond companies, according to public records. Many of them were run by her relatives – or colleagues who had worked with her at the National Gemstone Testing Centre.

In 1993, for instance, the state company Zhang ran helped found Beijing Diamond, a big jewellery retailer. A year later, one of her younger brothers, Zhang Jianming, and two of her government colleagues personally acquired 80 per cent of the company, according to shareholder registers. Beijing Diamond invested in Shenzhen Diamond, which was controlled by her brother-in-law, Wen Jiahong, the Prime Minister’s younger brother.

Among the undertakings was Sino-Diamond, a venture financed by China Mineral and Gem Corp. The company had business ties with a state-owned company managed by another brother, Zhang Jiankun, who worked as an official in Jiaxing, the hometown of Wen’s wife, in Zhejiang Province.

In the summer of 1999, after securing agreements to import diamonds from Russia and South Africa, Sino-Diamond went public, raising $US50 million on the Shanghai Stock Exchange. The offering netted the family of Wen’s wife about $US8 million, according to corporate filings.

Although she was never listed as a shareholder, former colleagues and business partners say Ms Zhang’s early diamond partnerships were the nucleus of a larger portfolio of companies she would later help her family and colleagues gain a stake in.

The Times found no indication Wen used his clout to influence the diamond companies his relatives invested in. But former business partners say the family’s success in diamonds, and beyond, was often bolstered with backing from wealthy people who sought to curry favour with his family.

“After Wen became prime minister, his wife sold off some of her diamond investments and moved into new things," said a Chinese executive who did business with the family. He asked not to be named because of fear of government retaliation. Corporate records show that beginning in the late 1990s, a series of businessmen took turns buying up large stakes in the diamond companies, often from Wen’s relatives, and then helped them reinvest in other lucrative venture such as real estate and finance.

According to corporate records and interviews, the businessmen often supplied accountants and office space to partnerships partly controlled by the relatives.

“When they formed companies," said one businessman who set up a company with members of the Wen family, ‘Ms Zhang stayed in the background. That’s how it worked.’ "

few princelings as bold as the younger Wen

Late one evening early this year, the Prime Minister’s only son, Wen Yunsong, was in the cigar lounge at Xiu, an upscale bar at the Park Hyatt in Beijing. He was having cocktails as Beijing’s nouveau riche gathered around, according to two guests.

In China, the children of senior leaders are widely believed to be in a class of their own, known as “princelings". They often hold Ivy League degrees, get VIP treatment, and are even offered preferred pricing on shares in hot stock offerings. In recent years, few princelings have been as bold as the younger Wen, who goes by the English name, Winston, and is about 40 years old.

A Times review of Winston Wen’s investments, and interviews with people who have known him for years, show his deal-making has been extensive and lucrative, even by the standards of his princeling peers. State-run giants such as China Mobile have formed start-ups with him. In recent years, Winston Wen has been in talks with Hollywood studios about a financing deal.

Concerned that China does not have an elite boarding school for Chinese students, he recently hired the headmasters of Choate and Hotchkiss in Connecticut to oversee the creation of a $US150 million private school in Beijing.

Winston Wen and his wife have stakes in the technology industry and an electric company, as well as an indirect stake in Union Mobile Pay, a government-backed payment platform – all while living in the Prime Minister’s residence, according to corporate records and people familiar with family investments.

not shy about using his influence

“He’s not shy about using his influence to get things done," says one venture capitalist who regularly meets with Winston Wen.

The younger Wen declined to be interviewed. But in a telephone interview, his wife, Yang Xiaomeng, said her husband had been unfairly criticised for his business dealings.

“Everything that has been written about him has been wrong," she said.

Winston Wen was educated in Beijing and then earned an engineering degree from the Beijing Institute of Technology. He went abroad and earned a master’s degree in engineering materials from the University of Windsor, in Canada, and an MBA from the Kellogg School of Business at Northwestern University in Evanston, Ill., just outside Chicago.

When he returned to China in 2000, he helped set up three successful technology companies in five years, according to people familiar with those deals. Two of them were sold to Hong Kong businessmen, one to the family of Li Ka-shing, one of the wealthiest men in Asia.

Winston Wen’s earliest venture, an internet data services provider called Unihub Global, was founded in 2000 with $US2 million in start-up capital, according to Hong Kong and Beijing corporate filings. Financing came from a tight-knit group of relatives and his mother’s former colleagues, as well as an associate of Cheng Yu-tung, patriarch of Hong Kong’s second-wealthiest family. The firm’s earliest customers were state-owned brokerage houses and Ping An, in which the Wen family has held a large financial stake.

He made an even bolder move in 2005, pushing into private equity when he formed New Horizon Capital with others. The firm quickly raised $US100 million from investors. Under Mr Wen, New Horizon established itself as a leading private equity firm, investing in biotech, solar, wind and construction equipment makers.Since it began operations, the firm has returned about $US430 million to investors, a fourfold profit.

unwanted attention for Wen

Some of Winston Wen’s deal-making, though, has attracted unwanted attention for the Prime Minister. In 2010, when New Horizon acquired a 9 per cent stake in a company called Sihuan Pharmaceuticals just two months before its public offering, the Hong Kong Stock Exchange said the late-stage investment violated its rules and forced the firm to return the stake. Still, New Horizon made a $US46.5 million profit on the sale.

Soon after, New Horizon announced Winston Wen had handed over day-to-day operations and taken up a position at the China Satellite Communications Corporation, a state-owned company that has ties to the Chinese space program. He has since been named chairman.

In the late 1990s, Duan Weihong was managing an office building and other properties in Tianjin, the Prime Minister’s hometown in northern China, through her property company, Taihong. She was in her 20s and had studied at the Nanjing University of Science and Technology.

Around 2002, Duan went into business with several of Wen’s relatives, transforming her property company into an investment vehicle. The company helped make Ms Duan very wealthy.

It is not known whether Duan, now 43, is related to the Prime Minister. In a series of interviews, she first said she did not know any members of the Wen family, but later described herself as a friend of the family and particularly close to the prime minister’s wife.

As with a handful of other Chinese entrepreneurs, Duan’s fortunes soared as she teamed up with the relatives and their network of friends and colleagues, although she described her relationship with them involving the shares in Ping An as existing on paper only and having no financial component.

Ms Duan and other wealthy businesspeople – among them, six billionaires from across China – have been instrumental in getting multimillion-dollar ventures off the ground and, at crucial times, helping members of the Wen family set up investment vehicles to profit from them, according to investment bankers who have worked with all parties.

Established in Tianjin, Taihong had spectacular returns. In 2002, the company paid about $US65 million to acquire a 3 per cent stake in Ping An before its initial public offering, according to corporate records and Duan’s graduate school thesis. Five years later, those shares were worth $US3.7 billion

The company’s Hong Kong affiliate, Great Ocean, also run by Ms Duan, later formed a joint venture with the Beijing government and acquired a huge tract of land adjacent to Capital International Airport. Today, the site is home to a sprawling cargo and logistics center. Last year, Great Ocean sold its 53 per cent stake in the project to a Singapore company for nearly US$400 million.

That deal and several other investments, in luxury hotels, Beijing villa developments and the Hong Kong-listed BBMG, one of China’s largest building materials companies, have been instrumental to Ms Duan’s accumulation of riches, according to The Times’s review of corporate records.

The Times’s review of corporate records showed that over the past decade there have been nearly three dozen individual shareholders of Taihong, many of whom are either Wen’s relatives or former colleagues of his wife.

The other wealthy entrepreneurs who have worked with the prime minister’s relatives declined to comment for this article. Duan strongly denied having financial ties to the Prime Minister or his relatives.

“The money I invested in Ping An was completely my own," said Duan. “Everything I did was legal."

Another wealthy partner of the Wen relatives has been Cheng Yu-tung, who controls the Hong Kong conglomerate New World Development and is one of the richest men in Asia, worth about US$15 billion, according to Forbes.

In the 1990s, New World was seeking a foothold in mainland China for a sister company that specializes in high-end retail jewellery. The retail chain, Chow Tai Fook, opened its first store in China in 1998.

Mr Cheng and his associates invested in a diamond venture backed by the relatives of Mr Wen and co-invested with them in an array of corporate entities, including Sino-Life, National Trust and Ping An, according to records and interviews with some of those involved. Those investments by Mr Cheng are now worth at least US$5 billion, according to the corporate filings. Chow Tai Fook, the jewellery chain, has also flourished. Today, China accounts for 60 per cent of the chain’s US$4.2 billion in annual revenue.

Mr Cheng, 87, could not be reached for comment. Calls to New World Development were not returned.

In the winter of 2007, just before his second term as prime minister, Wen called for new measures to fight corruption, particularly among top officials. Whether he has made such disclosures for his own family is unclear, since the Communist Party does not release such information. Even so, many of the holdings found by The Times would not need to be disclosed under the rules since they are not held in the name of Wen’s immediate family.

“Leaders at all levels of government should take the lead in the anti-graft drive," he told a gathering of high-level party members in Beijing. “They should strictly ensure their family members, friends and close subordinates do not abuse government influence."

The speech was consistent with the prime minister’s earlier drive to toughen disclosure rules for public servants, and to require senior officials to reveal their family assets.

About 80 per cent of the $US2.7 billion in assets identified in The Times’s investigation and verified by outside auditors were held by, among others, the Prime Minister’s mother, his younger brother, two brothers-in-law, a sister-in-law, daughter-in-law and the parents of his son’s wife, none of whom face party disclosure rules. The total value of the relatives’ stake in Ping An is based on calculations by The Times that were confirmed by the auditors. The total includes shares held by the relatives that were sold between 2004 and 2006, and the value of the remaining shares in late 2007, the last time the holdings were publicly disclosed.

Legal experts said that determining the precise value of holdings in China could be difficult because there might be undisclosed side agreements about the true beneficiaries.

“Complex corporate structures are not necessarily insidious," says Curtis Milhaupt, a Columbia University Law School professor. “But in a system like China’s, where corporate ownership and political power are closely intertwined, shell companies magnify questions about who owns what and where the money came from."

Among the investors in Wen family ventures are business associates, former colleagues and college classmates, including Yu Jianming, who attended Northwestern with Winston Wen, and Zhang Yuhong, a longtime colleague of the Prime Minister’s younger brother. The associates did not return telephone calls seeking comment.

Next month, at the 18th Party Congress in Beijing, the Communist Party is expected to announce a new generation of leaders. But the selection process has already been marred by one of the worst political scandals in decades, the downfall of Bo Xilai, the Chongqing party boss, who was vying for a top position.

Wen Jiabao is expected to step down as Prime Minister because he has reached retirement age. Political analysts say that even after leaving office he could remain a strong backstage political force. But evidence his relatives amassed a fortune during his tenure could diminish his standing.

Last March, the Prime Minister hinted he was at least aware of persistent rumours about his relatives. During a televised news conference, he insisted he had “never pursued personal gain" in public office.

“I have the courage to face the people and to face history," he said in an emotional session. “There are people who will appreciate what I have done, but there are also people who will criticise me. Ultimately, history will have the final say."